Inc. is considering replacing its existing machine that is used to produce musical CDs. This existing machine was purchase 3 years ago at a base price of $50. Installation costs at the time for the machine were $2. The existing machine is considered a 3-year class for MACRS. The existing machine can be sold today for $30 and for $10 in 3 years. The new machine has a purchase price of $90 and is also considered a 3-year class for MACRS. Installation costs for the new machine are $8. The estimated salvage value of the new machine is $30. This new machine is more efficient than the existing one and thus savings before taxes using the new machine are $7 a year. The company's marginal tax rate is 20% and the cost of capital is 12%. For this project, what is the incremental cash flow in year 1? MACRS Fixed Annual
op-Ten Inc. is considering replacing its existing machine that is used to produce musical CDs. This existing machine was purchase 3 years ago at a base price of $50. Installation costs at the time for the machine were $2. The existing machine is considered a 3-year class for MACRS. The existing machine can be sold today for $30 and for $10 in 3 years. The new machine has a purchase price of $90 and is also considered a 3-year class for MACRS. Installation costs for the new machine are $8. The estimated salvage value of the new machine is $30. This new machine is more efficient than the existing one and thus savings before taxes using the new machine are $7 a year. The company's marginal tax rate is 20% and the cost of capital is 12%. For this project, what is the incremental cash flow in year 1?
MACRS Fixed Annual Expense Percentages by Recovery ClassYear3-Year5-Year7-Year10-Year15-Year133.33%20.00%14.29%10.00%5.00%244.45%32.00%24.49%18.00%9.50%314.81%19.20%17.49%14.40%8.55%47.41%11.52%12.49%11.52%7.70%5 11.52%8.93%9.22%6.93%6 5.76%8.93%7.37%6.23%7 8.93%6.55%5.90%8 4.45%6.55%5.90%9 6.56%5.91%10 6.55%5.90%11 3.28%5.91%12 5.90%13 5.91%14 5.90%15 5.91%16 2.95%
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